Life Tech reportedly exploring sale

CARLSBAD  Life Technologies Corp. is exploring a potential sale and has retained banks to advise on the process, according to the news agency Reuters. Shares of the biotechnology company surged nearly 11 percent to an all-time high on Friday.

The Carlsbad-based company, whose market value surged to nearly $10.5 billion, said on Friday its board has hired Deutsche Bank Securities and Moelis & Co. to assist in its “annual strategic review." No specific course of action has been decided, it said.

Shares closed Friday at $60.79, up $5.82, or 10.6 percent for the day.

Life Tech has drawn initial interest from several large private equity firms, according to a Reuters report that cited an unnamed "person familiar with the matter."

The person said the firms are expected to team up because of the high cost of a potential leveraged buyout, according to Reuters. The deal is still at an early stage and due diligence has yet to be conducted.

Life Tech is the top biotech in San Diego County by market value. It's also one of the region's largest employers, with a payroll of about 1,200 in Carlsbad out of a company-wide total of more than 10,000.

The company makes DNA analysis instruments and products used in biotechnology product development, as well as in academic research. The company is one of the largest suppliers of DNA analysis equipment, much in demand as researchers seek to understand how genetic variations contribute to diseases.

Other companies besides the private equity firms may be interested in Life Tech, wrote Charlie Miller, an analyst with Chicago-based Morningstar, in a research note.

"We believe pharmaceutical and other industry players (Roche and Thermo Fisher in particular) could also be potential buyers, although most have recently made large M&A deals that may prohibit them from pursuing Life in the near term," Miller wrote.

Other DNA-sequencing instrument providers have become targets over the last year by potential buyers. Last year, Roche Holding made an unsuccessful hostile attempt to buy San Diego-based gene sequencing company Illumina, generally regarded as Life Tech's chief rival.

Shares of Illumina fell 1.1 percent Friday to $51.03, valuing the company at around $6.3 billion.

While analysts agree that Life Tech offers an attractive product line, their estimates on how much the company would bring differ.

"Takeover chatter," gives a per-share purchase estimate in the $65-$75 range, which is "reasonable" compared to similar recent purchases, wrote Morningstar's Miller.

"While we do not consider a transaction to be a foregone conclusion, we see several factors that may make a deal possible," Miller wrote. "As we have mentioned before, we believe Life's broad product portfolio, augmented by industry-leading R&D, fortress of intangible assets, and tightly knit customer relationships that result in significant switching costs will support its strong competitive positioning in the rapidly evolving life sciences industry and result in persistent excess returns over the next decade."

However, Jeffries & Co. analyst Jon Wood wrote in a research note that a lower price is probable.

“While price talk is reported to be in the $65 to $75 range, our initial analysis suggests an LBO transaction valuing Life’s equity in the $50 to $60 range is at present more realistic,” Wood wrote.

While the company’s strong revenue, scalable operating model and capital efficiency may support a higher sale price, buyers had less appetite for risk following the 2008 financial crisis, Wood added.

Life Tech sells sequencers based on Ion Torrent technology, and the company says the technology will bring down the cost of analyzing an individual's genome for medical diagnostics to $1,000. At that cost, industry watchers say genome analysis will become widespread. The Ion Torrent analyzers are now used for research, but Life Tech says the technology will eventually be applied to clinical diagnostics.